A Taxing Change for Higher Education

A tax reform bill in Washington may have everlasting effects on many lives at Elon

Buried within a 429-page tax reform bill are provisions that specifically target those within the higher education community.

In the bill titled H.R.1 Tax Cuts and Jobs Act, the elimination of student loan interest deductibility, tax exempt bond financing and tax exempt tuition remission are three provisions with the most potential to affect lives at Elon University.

The end of tax deductibility of student loan interest may make paying off student loans, for seniors such as Erin Bishop, set to graduate this May, harder than expected.

The cutting of private activity bonds may slow down Elon’s plans to continue to expand the campus.

Additional taxes to tuition remission may make affording Elon more difficult for students such as Kevin Scott who enjoy the benefits of having parents work at the university as faculty or staff.

These potential challenges for Bishop, the university and Scott are becoming more likely as the majority of the Republican Party hopes the legislation will be signed into law by the end of 2017.

It’s a goal many leaders on Elon’s campus have spoken out against.

“I am not sure this bill has fully permeated into the American consciousness about what this is going to mean for actual outcomes for people and institutions,” President Leo Lambert told Elon News Network. “Those outcomes will not be positive.”

Lambert’s stance on the issue has been supported by several professors from different departments. Professors in both the departments of accounting and economics agreed with Lambert.

“This bill is bad. It is not good for Elon, and in the long run it is not good for the country,” said Susan Anderson, professor of accounting with a specialty in tax policy.

“The passing of this bill could be disastrous for Elon, there are a number of provisions that would directly hurt not only universities

and colleges, but also their students,” said Steve DeLoach, professor of economics and chair of the department of economics.

Professors in the political science department and on Academic Council have also expressed their concern over the potential repercussions of this tax reform policy.

“I hope it gets voted down or substantially changed,” said Phillip Motley, chair of Academic Council. “I worry that even if modifications are made before some final version is passed, it won’t have to do with our particular issues at Elon, in higher education as faculty, staff and students.”

“It is impossible to provide a summary judgement on a piece of legislation as large and complex as this one,” said Jason Husser, assistant professor of political science and policy studies. “But there may be immediate negative financial consequences for the U.S. and for higher education.”

Within the two versions of the Republican tax bill there are three provisions that have the most potential to affect the lives of students, faculty and staff.

Reforming Student Loan Interest Deductibles

Interest on student loans would no longer be tax deductible. This means students who borrow money to pay for tuition will pay more in federal taxes, because they can no longer subtract the interest on their student loans from their taxable income.

Over the past four years, Bishop has been using student loans to pay for her enrollment at Elon. From her freshman to senior fall, her combined debt has added up to almost $115,000. By the time she graduates in May 2018, Bishop is expecting to owe almost $140,000 in student loans.

Currently after graduation, if Bishop found a job that paid the approximate average starting yearly salary of $50,000, according to the National Association of Colleges and Employers, with student loan deductibles she would need to pay $7,653 in federal taxes each year, according to the 2016 tax tables.

While the lower tax rates would more than offset the loss of student loan deductibles — in Bishop’s case, by $1,003 — professors at Elon say the tax reform bill would deincentivize higher education and put students who rely on loans at a disadvantage.

“While a recent college graduate might get a tax cut, it still makes college education more difficult,” DeLoach said. “The reason is that people making the same money without loans will be better off than people with loans. ... It punishes people who take out loans for college relative to others.”

Bishop is unsure if she would have made the same decision if the Republican tax reform policy had been law during her freshman year.

“I wouldn’t know what I would do or how my parents would advise me,” Bishop said. “I don’t know if I would have transferred or if I would have just bitten the bullet and stuck through it. But even if I transferred somewhere else it still wouldn’t have been great because the tax bill would be everywhere.”

Bishop said as her final year ends, she is seeing the effects of her looming debt.

“I have friends who are planning a senior spring break trip, and for me — even if I had the money — I would feel guilty using that money because I know how much debt I have and that puts an emotional toll on you,” Bishop said. “I feel guilty every time I have to ask my dad to help pay for my groceries. While it is not a significant amount of money, it does add up.”

Bishop’s costs are a lot higher than the Elon average. In 2014, the average student debt for Elon graduates was $27,176, according to the Institute for College Access & Success. Patrick Murphy, director of financial planning, says approximately 42 percent of the student body uses student loans.

Elon’s average student debt has decreased to $23,250, according to the College Scorecard, an online tool created by the U.S. government to compare the cost and value of higher education institutions. Opponents to the bill say despite this drop in student loan averages and the possibility of less federal tax, the new tax reform policy will not make this debt any easier to afford.

“The heart of Elon University is always going to be the student body at large. The student loan issue is a huge problem because that is a deciding factor for so many students on whether or not to attend Elon,” said junior Michaela Fogarty, president of College Democrats.

During a monthly faculty meeting on Dec. 1, Bob Shea, associate vice president for business, finance & technology gave a presentation about the effects the new tax policy could have on the community.

“Nationally, this has a huge impact and it would have an impact on our students as well,” Shea said.

While Shea was referring to undergraduate students, this tax reform policy will have a similar effect on graduate students.

“This bill is going to make it more difficult for students to go to graduate school,” Motley said. “Which could potentially reduce the number of graduate students which then affects the universities.”

Terminating Private Activity Bonds

When private universities use bonds to pay for buildings, the interest they pay to their lenders would now be taxed. Elon’s future construction would be more expensive since the university would have to pay a higher rate of interest to attract investors. This has the potential to disrupt the university’s expansion plans.

Private activity bonds are an advantage this new tax reform policy has the potential to take away.

“Elon is a growing university and we have built a lot of facilities because of the benefit of having tax-free bonds,” said Dan Anderson, vice president of university communications. “The termination of private activity bonds would have a limiting factor on our future growth.”

If not for these private activity bonds, it is unlikely that Elon would have been able to expand as much as it has.

“Over the course of the last 10 years, if this house proposal was law the additional cost to Elon would have been about $60 million,” Shea said. “That means we would not have been able to build many of the buildings that we have.”

This potential cost may cause Elon to make difficult decisions in the future.

“Depending on the size of the bond offering, it could increase out financing costs in excess of $1 million annually,” Shea said. “This would force us to make difficult choices concerning the implementation of Elon’s strategic plans.”

As an example, Shea said the last two private activity bonds issued to Elon were in the vicinity of $54 million. The elimination of these bonds would have led to an additional $60 million in taxable bond cost, making Elon’s last two projects unaffordable.

“If you take the advantage of private activity bonds away, we would have to pay significantly higher interest rates, which would slow down our plans to expand,” DeLoach said.

The construction of future housing residences, dining halls, academic buildings and sports stadiums would be dramatically slowed as the cost of building one of those structures may increase astronomically with the new tax reform policy.

Repealing Tuition Remission

The money Elon faculty and staff save with university benefits that waive their children’s tuition and fees would be added to their income, which would then be taxed.

Many faculty and staff who have served Elon for several years can apply for this benefit titled tuition remission, which allows them to send their children to Elon without the cost of tuition.

Glenn Scott, associate professor of communications, is currently using tuition remission to afford his son’s tuition at Elon.

“I don’t think we would be here if not for tuition remission,” Glenn said. “One of the reasons we decided to come to Elon was because of that value down the line. We recognized that we would like our son to be here someday — that kept us here.”

Glenn has just started using tuition remission, as his son Kevin is a freshman finishing his first semester. The exact cost of how much the Scott family would have to pay if the tax reform policy was put into place is uncertain.

“We don’t have lots of money, so it will hit us pretty hard,” Glenn said. “It means probably for us anywhere from $4,500 to $6,500 in additional taxes.”

The strain these additional taxes may put on his parents is what worries Kevin the most.

“My parents work incredibly hard in order for me to be at an institution like Elon,” Kevin said. “It worries me that my mom — who already works many hours a week — would have to work even more … Or my dad would have to end up taking more of a workload in order to compensate for the money we would be losing.”

The Scotts are not the only family whose tuition remission has the possibility of being taxed by this new tax policy reform.

During the faculty meeting Shea presented in, he asked how many people in the room had sent a “dependables” through Elon and found that many in the audience had raised their hands.

“That benefit would no longer be tax exempt, it would be taxable,” Shea said. “That would have a huge impact on our faculty and staff and our ability to recruit.”

This is a problem many professors, even those who do not have a child enrolled in Elon can understand.

“If I had a child that was going to Elon, I would now be taxed on the value of Elon tuition that I didn’t pay,” Susan Anderson said. “That creates a problem because I didn’t get that as income, but it is going to be treated as income and I may not have the cash to pay the tax.”

Currently a married professor at Elon, makes the average salary of $82,000, according to Elon’s 2015 990 forms in taxable income.

If the professor was supporting one child through Elon he or she would pay $12,049 in federal tax according to the 2016 tax tables. If the current tax reform bill is passed, the professors federal tax would increase by $5,319.25, making their total $17,368.25.

The full extent of the potential effects this tax reform policy will have on Elon and higher education remains uncertain as both the U.S. House of Representatives and the U.S. Senate have yet to pass the reconciled versions of the tax reform policy.

“A small change in tax policy has the potential to change all aspects of society,” Husser said. “Taxes in some ways are the greatest form of government power.”

Republicans on campus want to remind the community of the Republican Party’s intentions behind this bill.

“The intention of the Republican tax reform bill is to benefit all Americans,” said senior Carson Steelman, chairman of the Elon College Republicans.

Senator Richard Burr celebrated the passing of the U.S. Senate’s version of the tax reform policy on Dec. 2.

“This bill is an historic opportunity to reform a broken tax code that hasn’t worked for the people of this country in years,” said Burr in a press release on Dec. 2.

Representative Mark Walker reacted similarly after the House of Representatives passed the tax reform policy on Nov. 16.

“Today, we kept an important promise to the voters in delivering an overhaul of our broken tax code and bringing tax relief to millions of lower and middle income families,” Walker said in Washington the day the tax reform was passed.

If this tax reform policy is passed, the effects of this well-intentioned bill could be felt as early as 2019. A reality Lambert hopes not to face.

“America’s future depends on an educated citizenry, the people who are going to prosper and thrive in the 21st century are going to be the educated people,” Lambert said. “It is in our national interest to encourage people to get more education, America’s future depends on an educated citizenry.”

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